A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour, or other unit is paid separately, rather than on a periodic basis. From the point of view of running a business, salary can also be viewed as the cost of acquiring and retaining human resources for running operations and is then termed personnel expense or salary expense. In accounting, salaries are recorded in payroll accounts.
Salary is a fixed amount of money or compensation paid to an employee by an employer in return for work performed. Salary is commonly paid in fixed intervals, for example, monthly payments of one-twelfth of the annual salary.
Salary is typically determined by comparing market pay rates for people performing similar work in similar industries in the same region. Salary is also determined by leveling the pay rates and salary ranges established by an individual employer. Salary is also affected by the number of people available to perform the specific job in the employer’s employment locale.
First paid salary
While there is no first pay stub for the first work-for-pay exchange, the first salaried work would have required a society advanced enough to have a barter system that allowed for the even exchange of goods or services between tradesmen. More significantly, it presupposes the existence of organized employers—perhaps a government or a religious body—that would facilitate work-for-hire exchanges on a regular enough basis to constitute salaried work. From this, most infer that the first salary would have been paid in a village or city during the Neolithic Revolution, sometime between 10,000 BCE and 6000 BCE.
A cuneiform inscribed clay tablet dated about 3100 BCE provides a record of the daily beer rations for workers in Mesopotamia. The beer is represented by an upright jar with a pointed base. The symbol for rations is a human head eating from a bowl. Round and semicircular impressions represent the measurements.
By the time of the Hebrew Book of Ezra (550 to 450 BCE), salt from a person was synonymous with drawing sustenance, taking pay, or being in that person’s service. At that time, salt production was strictly controlled by the monarchy or ruling elite. Depending on the translation of Ezra 4:14, the servants of King Artaxerxes I of Persia explain their loyalty variously as “because we are salted with the salt of the palace” or “because we have maintenance from the king” or “because we are responsible to the king”.
Similarly, the Latin word salarium linked employment, salt, and soldiers, but the exact link is not very clear. More modern sources maintain instead that although Roman soldiers were typically paid in coin, the word salarium is derived from the word sal (salt) because at some point a soldier’s salary may have been an allowance for the purchase of salt or the price of having soldiers conquer salt supplies and guard the Salt Roads (Via Salaria) that led to Rome. However, there is no ancient evidence for either of these hypotheses.
Some people even claim that the word soldier itself comes from the Latin sal dare (to give salt), but mainstream sources disagree, noting that the word soldier more likely derives from the gold solidus, with which soldiers were known to have been paid.
Roman empire and medieval and pre-industrial Europe
Regardless of the exact connection, the salarium paid to Roman soldiers has defined a form of work-for-hire ever since in the Western world, and gave rise to such expressions as “being worth one’s salt”.
Within the Roman Empire or (later) medieval and pre-industrial Europe and its mercantile colonies, salaried employment appears to have been relatively rare and mostly limited to servants and higher status roles, especially in government service. Such roles were largely remunerated by the provision of lodging, food, and livery clothes (i.e., “food, clothing, and shelter” in modern idiom).
Many courtiers, such as valets de Chambre, in late medieval courts, were paid annual amounts, sometimes supplemented by large if unpredictable extra payments. At the other end of the social scale, those in many forms of employment either received no pay, as with slavery (although many slaves were paid some money at least), serfdom, and indentured servitude, or received only a fraction of what was produced, as with sharecropping.
Other common alternative models of work included self- or co-operative employment, as with masters in artisan guilds, who often had salaried assistants, or corporate work and ownership, as with medieval universities and monasteries.
Even many of the jobs initially created by the Commercial Revolution in the years from 1520 to 1650 and later during Industrialisation in the 18th and 19th centuries would not have been salaried, but, to the extent, they were paid as employees, probably paid an hourly or daily wage or paid per unit produced (also called piece work).
Incorporations of this time, such as the several East India Companies, many managers would have been remunerated as owner-shareholders. Such a remuneration scheme is still common today in accounting, investment, and law firm partnerships where the leading professionals are equity partners, and do not technically receive a salary, but rather make a periodic “draw” against their share of annual earnings.
Second Industrial Revolution
From 1870 to 1930, the Second Industrial Revolution gave rise to the modern business corporation powered by railroads, electricity, and the telegraph and telephone. This era saw the widespread emergence of a class of salaried executives and administrators who served the new, large-scale enterprises being created.
New managerial jobs lent themselves to salaried employment, in part because the effort and output of “office work” were hard to measure hourly or piecewise, and in part because they did not necessarily draw remuneration from share ownership.
As Japan rapidly industrialized in the 20th century, the idea of office work was novel enough that a new Japanese word (salaryman) was coined to describe those who performed it, as well as referencing their remuneration.
In the 20th century, the rise of the service economy made salaried employment even more common in developed countries, where the relative share of industrial production jobs declined, and the share of executive, administrative, computer, marketing, and creative jobs—all of which tended to be salaried—increased.
Salary and other forms of payment today
Today, the concept of a salary continues to evolve as part of a system of the total compensation that employers offer to employees. Salary (also now known as fixed pay) is coming to be seen as part of a “total rewards” system which includes bonuses, incentive pay, commissions, benefits and perquisites (or perks), and various other tools which help employers link rewards to an employee’s measured performance.
Compensation has evolved considerably. Consider the change from the days of and before the industrial evolution, when a job was held for a lifetime, to the fact that, from 1978 to 2008, individuals who aged from 18 to 44, held an average number of 11 jobs. Compensation has evolved gradually moving away from fixed short-term immediate compensation towards fixed + variable outcomes-based compensation. An increase in knowledge-based work has also led to the pursuit of partner (as opposed to employee) engagement.
In the United States, the distinction between periodic salaries (which are normally paid regardless of hours worked) and hourly wages (meeting a minimum wage test and providing for overtime) was first codified by the Fair Labor Standards Act of 1938.
At that time, five categories were identified as being “exempt” from minimum wage and overtime protections, and therefore salariable. In 1991, some computer workers were added as a sixth category but effective August 23, 2004, the categories were revised and reduced back down to five (executive, administrative, professional, computer, and outside sales employees).
In June 2015 the Department of Labor proposed raising “the salary threshold from $455 a week (the equivalent of $23,660 a year) to about $970 a week ($50,440 a year) in 2016” On May 18, 2016, the Final Rule updating the overtime regulations was announced. Effective December 1, 2016, it says:
“The Final Rule sets the standard salary level at the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week, equivalent to $47,476 per year for a full-year worker).”
“The Final Rule sets the HCE total annual compensation level equal to the 90th percentile of earnings of full-time salaried workers nationally ($134,004 annually). To be exempt as an HCE, an employee must also receive at least the new standard salary amount of $913 per week on a salary or fee basis and pass a minimal duties test.”
“Although the FLSA ensures minimum wage and overtime pay protections for most employees covered by the Act, some workers, including bona fide EAP employees, are exempt from those protections. Since 1940, the Department’s regulations have generally required each of three tests to be met for the FLSA’s EAP exemption to apply:
- the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”);
- the amount of salary paid must meet a minimum specified amount (“salary level test”); and
- the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”). “
“The Final Rule includes a mechanism to automatically update the standard salary level requirement every three years to ensure that it remains a meaningful test for distinguishing between overtime-protected white-collar workers and bona fide EAP workers who may not be entitled to overtime pay and to provide predictability and more graduated salary changes for employers.
Specifically, the standard salary level will be updated to maintain a threshold equal to the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region.”
“For the first time, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. Such payments may include, for example, nondiscretionary incentive bonuses tied to productivity and profitability.”
A general rule for comparing periodic salaries to hourly wages is based on a standard 40-hour workweek with 50 weeks per year (minus two weeks for vacation). (Example: $40,000/year periodic salary divided by 50 weeks equals $800/week. Divide $800/week by 40 standard hours equals $20/hour).
Negotiation of salary
Prior to the acceptance of an employment offer, the prospective employee usually has the opportunity to negotiate the terms of the offer. This primarily focuses on salary but extends to benefits, work arrangements, and other amenities as well. Negotiating salary can potentially lead the prospective employee to a higher salary.
In fact, a 2009 study of employees indicated that those who negotiated salaries saw an average increase of $4,913 from their original salary offer. In addition, the employer is able to feel more confident that they have hired an employee with strong interpersonal skills and the ability to deal with conflict. Negotiating salary will thus likely yield an overall positive outcome for both sides of the bargaining table.
Perhaps the most important aspect of salary negotiation is the level of preparation put in by the prospective employee. Background research on comparable salaries will help the prospective employee understand the appropriate range for that position.
Assessment of alternative offers that the prospective employee has already received can help in the negotiation process. Research on the actual company itself will help identify where concessions can be made by the company and what may potentially be considered off-limits. These items, and more, can be organized into negotiation planning documents that can be used in the evaluation of the offers received from the employer.
Effects of perspective
The same 2009 study highlighted the personality differences and negotiation mindsets that contributed to successful outcomes. Overall, individuals who are risk-averse (e.g., worried about appearing ungrateful for the job offer) tended to avoid salary negotiations or use very weak approaches to the negotiation process.
On the contrary, those who were more risk-tolerant engaged in negotiations more frequently and demonstrated superior outcomes. Individuals who approached the negotiation as a distributive problem (i.e. viewing the higher salary as a win for him/her and a loss to the employer) ended up with an increased salary, but a lower rate of satisfaction upon completion.
Those who approached the negotiation as an integrative problem (i.e. viewing the negotiation process as an opportunity to expand the realm of possibilities and help both parties achieve a “win” outcome) were able to both secure an increased salary and an outcome they were truly satisfied with.
Salary disparities between men and women may partially be explained by differences in negotiation tactics used by men and women. Although men and women are equally likely to initiate a salary negotiation with employers, men will achieve higher outcomes than women by about 2% of starting salary.
Studies have indicated that men tend to use active negotiation tactics of directly asking for a higher salary, while women tend to use more of an indirect approach by emphasizing self-promotion tactics (e.g. explaining the motivation to be a good employee). Other research indicates that early-childhood play patterns may influence the way men and women negotiate. Men and women tend to view salary differently in terms of relative importance. The overall level of confidence in a negotiation may also be a determinant of why men tend to achieve higher outcomes in salary negotiations. Finally, the awareness of this stereotype alone may directly cause women to achieve lower outcomes as one study indicates. Regardless of the cause, the outcome yields a disparity between men and women that contributes to the overall wage gap observed in many nations.
The Constitution of the Republic of South Africa 239 provides for the right to fair labor practices in terms of article 23. article 9 of the Constitution makes provision for equality in the Bill of Rights, which an employee may raise in the event of an equal pay dispute. In terms of article 9(1) “everyone is equal before the law and has the right to equal protection and benefit of the law’”
Furthermore, “the state may not unfairly discriminate directly or indirectly against anyone on one or more grounds, including race, gender, sex, pregnancy, marital status, ethnic or social origin, color, sexual orientation, age, disability, religion, conscience, belief, culture, language, and birth.”
South African employees who were in paid employment had median monthly earnings of R2 800. The median monthly earnings for men (R3 033) were higher than that for women (R2 340) – women in paid employment earned 77,1% of what men did.
Role of weight
Research done in 2011 showed that the “weight double standard” may be more complex than what past research has suggested. This is not only relevant to women, but also to men. The smallest income gap differences occur at thin weights (where men are penalized and women are rewarded) and the opposite happens at heavier weights, where the women are affected more negatively.